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DRIVERS OF THE BROADBAND INDUSTRY IN CHINA AND INDIA:

WHAT CAN WE LEARN?

Nir KshetriThe University of North CarolinaGreensboro

USA

Nikhilesh DholakiaUniversity of Rhode IslandUSA

ABSTRACT

Telecommunications networks of India and China are among the largest in the world. Inthis paper, we offer a model of broadband diffusion in a developing economy. Then wecompare and contrast building blocks of the model in the context of China and India.

KEYWORDS

India, China, broadband, telecommunications, diffusion, outsourcing

1. INTRODUCTION

Telecommunications networks of India and China are among the largest in the world.Broadband networks in some regions in these two economies such as Shanghai andother coastal towns of China (Mallaby 2005) and Bangalore and Hyderabad in India aremore developed than in some parts of the industrialized world (COMMWEB, April 26).

Sperling (2004) notes that there is better broadband in Bangalore than Buffalo.Likewise, citing an experience of a U.S. based firm, Wilson (2005) has observed that itis easier to get a broadband connection in some cities in India and China than to getone to [a] factory 70 miles away in Batesville, [Mississippi (USA)]. As of 2005, Chinaranked the second in the worldonly after the U.S.- in terms of the numbers of theInternet users as well as broadband users. One study suggested that by the early 2006,a Chinese Internet user was more likely to be on broadband connections than his/herU.S. counterpart (Koprowski 2006). By the early 2006, over half of Chinese Internet-users had broadband compared to only 6.6 percent at the end of 2002 (The EconomistApril 29, 2006). Moreover, Chinas broadband network growth rate is among the fastestin the world (Oil and Gas Investor2004). By the end of 2006, China is expected to have

more Internet users and broadband lines than any other country in the world (BusinessWeek, March 15, 2004). Currently, India is far behind China in terms of broadband andother related indicators. A report released by Forrester Research in May 2006 indicatedthat the top three socio-economic classes in urban India had only a 3 per centbroadband adoption rate (zdnetindia.com 2006). Nonetheless, India is expected torapidly catch up in the broadband race. India's Ministry of Communications &Information Technology hopes that broadband will reach 12 million homes in the countryby 2010 (Burrows et al. 2005). The two countries, however, differ drastically in terms of


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major drivers of broadband industry. China outperforms India on factors such asconsumer innovativeness, potential of possible broadband applications such asmultimedia and animation, business-to-business (B2B) and business-to-consumer(B2C) e-commerce, and IT enabled services, level and composition of basetechnologies and supporting infrastructures required for broadband development.

Indias position as a global capital of outsourcing industry, on the other hand, has beena major trigger for spurring broadband demand in the country.

This paper compares and contrasts critical broadband drivers in China and India.Following Beise (2001), and Lehrer, Dholakia and Kshetri (2002), we divide factorsdriving the growth of broadband industry into three groups: nature of domestic demandsand inputs (Linder, 1961;Vernon 1966), industry structure(Porter 1980, 1990), andexport and transfer conditions(Beise 2001; Tilton 1971). Nature of domestic demandand inputsinclude factors such as consumer preferences, income, availability and costsof input, infrastructures and government regulations (the roles of technology parks willbe covered in detail) and technological economies of scope (a function of prior national

experience with previous generations of technology). The importance of industrystructureon the performance of broadband industry can be explained in terms of theindustrial organization theory. According to this theory, industry structure determines afirms behavior, strategy and performance (Bain 1956, Porter 1980; Scherer and Ross1990). Competition level, size and distribution of broadband suppliers as well as natureand structure of related industries will be analyzed under this category.Factors such astrade policy, export orientation of the firms in the country, strategic regulation, andmarket size will be covered under transfer and export conditions.

2. BROADBAND DIFFUSION IN CHINA AND INDIA: A BRIEF SURVEY

As of 2005, in terms of Internet users as well as broadband users, China ranked thesecond in the worldonly after the U.S. Nonetheless, Chinas broadband network isgrowing faster than that of the U.S. In the first quarter of 2006, China added 3.7 millionbroadband lines compared to 3.3 million lines in the U.S. (ZDNet Research 2006). By2006-end, China is expected to have more broadband lines than that of the U.S.(Business Week 2004a, Wagner 2005). The proportion of Chinese Internet-users withbroadband access increased from 6.6% at the end of 2002 to over 50% by the early2006 (The Economist 2006b) and about 66% by July 2006 (msnbc.com 2006). Onestudy suggested that by the early 2006, a Chinese Internet user was more likely to beon broadband connections than his/her U.S. counterpart (Koprowski 2006).

China has planned to launch third generation (3G) cellular network in the late 2006 (TheMainichi Newspapers 2006). The research firm, Analysys, has estimated the first roundof 3G investment in 2006 at $1.25 - 2.5 billion and the first phase demand of 10-20million linesi. Given that even in the countryside, it is already possible to access theInternet at fixed line speeds using a mobile handset (The Economist 2006b), Chinascellular broadband potential seems considerable.


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In India, dial-up customers account for a substantial proportion of Internet users (Bruceand Macmillan 2003) and the broadband network is far behind Chinas (Figure 1 andTable 1).. Indian broadband subscribers increased from 50,000 in 2001 to 140,000 in2003 compared to 304,000 to 10.5 million in China during the same period (ITU 2005a).A Forrester Research report in May 2006 indicated that the top three socio-economic

classes in urban India had only a 3% broadband adoption rate (zdnetindia.com 2006).Nonetheless, India's Ministry of Communications & Information Technologyexpectsbroadband in 12 million homes (Burrows et al. 2005) and 40 million Internet subscribersby 2010 (Fixed Line Telecoms 2005).

While several OECD countries have cable TV connections to provide Internet access(ITU 2005b), digital subscriber line (DSL) is the dominant form of broadband in Chinaand India. Indeed, in 2004, China had 11 million DSL users, the worlds highestii.Likewise, in India, DSL lines provided mainly by Bharti and BSNL have contributed tothe rapid broadband growth (ZDNet Research 2006).

2.1 REGIONAL DISTRIBUTION OF BROADBAND USERS

Rapid broadband growths in both countries are, however, characterized by a highdegree of geographical disparity and regional imbalances (Martinsons 2005, Narayananet al. 2005). Broadband networks in some regions such as Shanghai and other coastaltowns of China (Mallaby 2005) and Bangalore and Hyderabad in India are considered tobe more developed than in some parts of the industrialized world (COMMWEB 2006).Sperling (2004) notes: ..[T]here is better broadband in Bangalore than Buffalo.Likewise, Wilson (2005) observed that it is easier to get broadband connections in someIndian and Chinese cities than to [a] factory .. in Batesville [Mississippi].

Like the rest of the Chinese economy, the Internet and broadband population reflects ageographical bias towards the east. Chinas interior provinces lag behindtechnologically. About 40% of Internet users are in Beijing, Guangzhou and Shanghaiwhereas only 1% live in western China (Country Commerce 2006). According to theChina Internet Network Information Center (CNNIC), as of December 2005, only 2.6% ofthe rural population had Internet access compared to 16.9% of the urban populationiii.Nevertheless, almost every county has broadband and Internet cafes and high-speedconnections are ubiquitous and cheap even in remote towns (The Economist 2006b).

India has a higher geographic disparity. As of July 2006, broadband covered about 300Indian cities (Basu 2006b). Broadband connectivity is, however, planned for all villages

and there are already some uses, albeit limited, of wireless broadband in rural areas.

3. FACTORS DRIVING BROADBAND DIFFUSION IN THE DEVELOPING WORLD:

THE CASE OF CHINA AND INDIA

Numerous factors influence the development of the broadband industry in a developingeconomy. Figure 2, present a preliminary model relating factors driving broadband andassociated mechanisms.


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3.1 GOVERNMENTS ROLE

Let us begin with the governments role. Different theoretical contributions and variousempirical studies have led to the accepted view that the government can attack barriers

to technology adoption by legal and non-legal influences such as new laws, investmentincentives, foreign technology transfer, and other supply-push and demand-pull forces(King et al 1994, Montealegre 1999). Successful developing countries are those thatcan attack barriers related to skills, information, market and infrastructures by suchmeans.

Governments subsidy to technology-intensive industries (Newman et al. 2006) andmarket innovation have played key roles in both countries. However, the statesdeepentrenchment in theeconomy means that the government can play a more critical rolein China than in India (Pei 2006). For instance, whereas state-owned firms generateless than 7% of GDP in India, according to UBS, the state accounts for at least 70% of

the Chinese economy (Pei 2006).

Chinese government designed a series of programs to accelerate telecom developmentin the 1990s which included extensive re-engineering of and intense competition in thissector. Telecom companies were required to adapt to the rigorous disclosurerequirements of the NYSE, NASDAQ, and Hong Kong's Growth Enterprise Market(McDaniels and Waterman 2000). The Chinese initiative to launch its version of nationalinformation infrastructure (NII), known as the Golden Projects (Tan et al. 1997), put inplace developed backbone infrastructure (Pyramid Research 2001). The StateDevelopment and Planning Commission (SDPC) also ratified a high-speed Internetproject. The initial plan was to build a backbone network linking 15 major cities on the

eastern seaboard including Beijing, Shanghai and Guangzhou (Lovelock 2001).

In China, government has also played a key role in promoting geographical equity. Thegovernment set a goal of installing fiber optic telecom lines to large villages by the endof 2000 (Lovelock 2001). During the tenth five-year plan (2001-05), it targetedtechnological development as priority tasks. Consequently, even Western China istransformed these days (Martinsons 2005). The Sichuan province in western Chinaprovides a case in point, where the number of broadband Internet users increased from447 in 2000 to 780,000 in September 2005 (Country Commerce 2006).Chinas state-owned companies invested heavily in telecom (The Economist 2006b)which amounted $2.5 billion in broadband in 2000, with an estimated broadband related

investment of $24 billion by 2005 (Lovelock 2001). Indias investments in broadband(and telecom in general) have been much lower (Figure 1). During the mid-2000-mid-2002, about $5 billion was estimated to be invested in new fiber-optic systems (Erickson2000). Frost & Sullivan estimated that Indias broadband investments were around $390million in 2004 (Goyal 2005).

In India, the governments key contribution has been to create competitions forbroadband and traditional telecom services, which are arguably healthier than Chinas


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(Pyramid Research 2001). Among other measures, India privatized the national long-distance market, permitted ISPs to set up their own submarine cable landing stationsand share bandwidth with other ISPs, and allowed the use of Ku-band in both Indianand foreign satellites. Multinationals such as Lucent Technologies and Airtel have laidfiber-optic lines. As early as in 2000, Singapore Telecom announced an eight-terabit

cable connection between Singapore and India (Lynch 2001). Likewise, VSNL, theState owned Telephone Company, which listed on the New York Stock exchange in themid-2000, proposed to increase its capacity to 13 gigabits by 2004 (Erickson 2000).

In 2004, the government issued a report stressing the need for facilitating the expansionof broadband, which placed special emphasis on wireless broadbandiv. Reduction inentry barriers led to intense competition and low prices. The incumbent operators wereallowed to establish commercial franchisee agreements with competitorsv. Operatorswere allowed to provide both fixed and mobile services under a single license (Lee et al.2005). Delicensing of spectrum usage also encouraged the use of wireless broadband(Goyal 2005).

More recently, the government initiated Indian PC Program aims to improve PCpenetration to 65 per 1,000 by 2008. Major components of the program include: a)launching Rs 9,999 ($230) PCs subsidized by software vendors and chipmakers; b)encouraging all operators provide a subscription model bundling broadband and PC; c)setting up loans, employee provident funds and other funds to encourage PC adoptionamong government employees; and d) amending the Income Tax Act to deduct homePC purchase (Lee et al. 2005).

In both countries, limited authorized content on the Internet, to some extent, may act asa roadblock to a faster broadband diffusion (Clendenin 2005). Both countries laws banpolitically and/or culturally objectionable contents. This is more so for China. ChineseMinistry of Information Industry (MII) and the State Press and Publication Administrationhave issued series of regulations threatening to fine or close down Internet publishersand portals disobeying content guidelines. Portals and search engines not following theguidelines such as Google and Altavista were banned in China in 2002.The Indian federal government in July 2003 specified a number of conditions in which itcan ban websites. In 2003, ISPs were asked to block a Yahoo group related to Nagamilitants, which led to a ban on the entire Yahoo e-groups (Singh 2006). In the similarvein, in July 2006, after Mumbai blasts, Indias 153 ISPs were asked to block 17websites (Biswas 2006).

3.2 INDUSTRY STRUCTURE

Telecom deregulation was among many preparatory reforms introduced by China for itsWTO entry. By 2001, there were half a dozen carriers, dozens of foreign and domestichardware providers and many companies offering Internet services and related products(Iritani 2001). More recently, Asymmetric DSL (ADSL) rollout from China Telecom andChina Netcom triggered broadband growth (BBC Monitoring International Reports2006).


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Until some years ago, Indian broadband market was dominated by Dishnet, a DSL ISP(Telecoms & Technology Forecast Asia & Australasia 2005). In recent years, ISPs likeSify are expanding services (Goyal 2005). Telecom companies such as BSNL, MTNLand Bharti are aggressively attracting broadband customers. Almost all fixed lineoperators are testing broadband DSL for advanced applications such as video delivery

(Saran 2006).

Horizontal collaboration, which entails combining selected elements from eachbusiness's supply chain, is facilitating broadband growth. An alliance formed byMicrosoft, HCL (a manufacturer of computers and office equipment) and BSNL makes aPC loaded with Microsoft software ready for BSNL's broadband service for a monthlypayment of less than $11 (Goyal 2005). Thanks to such initiative, new PC sales are alsogrowing at 25% annually (Goyal 2005).

The structure of the Indian cable TV industry, however, lacks upgradeability tobroadband access. Small entrepreneurs providing services at low costs account for a

significant share of the cable industry. Internet access via cables requires a substantialinvestment, which may be beyond the reach of small players. Moreover, if cablebroadband is provided, monthly charge is estimated to be about $20, whichunaffordable to poor households (ITU 2005b). Thus, whereas low cable subscriptionfees (in the range of $1.28-3.20/month) and an active second-hand market for low-costtelevisions (ITU 2005b) have accelerated cable TV diffusion, this industry is not easilyupgradeable to broadband.

3.3 INPUT CHARACTERISTICS

An educated and skilled technology workforce is critical for the development of national

technological capability. It is important to note that both countries have a huge pull ofhigh quality-low cost engineers. China and India graduated over 600,000 and 350,000engineers in 2004 compared to 70,000 in the U.S. (Broad 2005). Likewise, the annualcost to employ a chip design engineer in 2002 was $28,000 in Shanghai, $24,000 inSuzhou (China) and $30,000 in India compared to $300,000 in the U.S. (Ernst 2005).

Regarding quality of the technology workforce, Intel CEO Craig Barrett argues that theChinese are "capable of doing any engineering, any software job, any managerial jobthat people in the United States are capable of" (Segal 2004). In the same vein, anincreasing inflow of more cutting edge business processes to India reflects the quality ofIndias high tech work force.

3.4 CONSUMER DEMAND

Broadband subscription is beyond the reach of the majority of Chinese and Indians(Chotrani 2002). Technological innovativeness or the propensity to adopt moderntechnologies such as broadband is, however, higher in China than in India. Forinstance, in the mid-1980s, the penetration rates of consumer durables in China wereabout the same as South Korea, Japan and then USSR (Sklair 1994, See Table 1 for


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related indicators). Thanks mainly to such innovativeness of Chinese consumers, interms of the technology achievement index constructed by the UNDP (2001), China'srank 45 (out of 72 economies considered) put it in the group of "dynamic adopters". Thesame study ranked India 63rd.

In broadband applications, Indian market is several years behind Chinas. For the onlinegames market, for instance, India in 2006 Is arguably comparable to China in 2001(Business Wire 2006). Other indicators related to broadband demand such as e-commerce and Internet advertising reveal similar patterns (Figure 2 and Table 1). Notsurprisingly, width and depth of Internet and broadband adoptions are higher in Chinathan in India (Kshetri 2002). The growth of broadband application such as e-commerce,blogging, instant messaging and Internet-based phone and video calls has triggeredbroadband demand in China (The Economist 2006b). For instance, in the early 2006,China was estimated have 30-38 million bloggers (Lim 2006) compared about 9 millionin Indiavi (Sengupta, 2006). Another estimate suggested that numbers of blogs in Chinawere in the range of 1-2 million in 2005 (French 2005). In India, Internet use is limited

to narrow range of applications such as email, chat and ticket bookings and very fewusers employ it for more sophisticated applications such as entertainment andinformation search (Sampath 2006). In the similar vein, for the depth of adoption, astudy of Ipsos Insight in November-December 2005 indicated that Chinese spent 17.9hours online compared to 4.4 hours for Indians (Burns 2006).

Although broadband prices are falling rapidly, few peasants and poor households canafford the services in China (The Economist 2006b) and India. Especially, given highcosts relative to income and the countrys low tele-density (Table 1), broadband marketis fragmented in India (Telecoms & Technology Forecast Asia & Australasia 2005). Atthe same time, shared broadband access is more common in China (SinoCast 2006)and India than in industrialized countries, which reduces the demand potential.

3.5 BUSINESS DEMAND

The two economies also differ widely in terms of the potential of possible broadbandapplications such as multimedia and animation, Internet advertising, business-to-business (B2B) and business-to-consumer (B2C) e-commerce, and IT enabled services(Table 1). China's business users are rapidly deploying broadband applications. Muchof that activity is centered on carrier-delivered Ethernet servicesvii. Especially, demandfrom firms with bandwidth-intensive businesses such as online gaming is growingrapidlyviii.

Government agencies in China are also among early adopters of ICT applicationsincluding broadband. Perhaps because of this, China outperforms industrializedcountries such as Switzerland, U.K., Singapore and Germany in e-governance (West2002). In most developing countries, the government is the single biggest user of ICTs(Nidumolu et al.1996). Advanced e-government programs in China have led to rapidgrowth of broadband demand from federal and local government agencies. To take oneexample, Motorola is working with the Chinese Ministry of Public Security (MPS) in a


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project to deploy video surveillance systems connected via fiber in major cities(Lindstrom 2006). Indeed, to support initiatives such as Golden Projects and e-government, China rapidly expanded broadband communications network in the late1990s (Lovelock 2001).

Cheap broadband and rapidly increasing business process outsourcing (BPO) arereinforcing each other in India thus creating a virtuous circle of broadband growth(Schuyler 2004). In 2004-05, the Indian offshore IT and BP outsourcing industrygenerated an estimated $17.3 billion and employed 695,000 people (Farrell et al.2005)ix. IT outsourcing brought India more than $7 billion in 2003, which is expected todouble by 2007 and quadruple by 2012 (Donlan 2005). According to aNASSCOM/KPMG study, in 2004, the Indian BPO industry grew by 40% to reach $5.8billion and is expected to reach $64 billion in 2012, employing 3 million people (Hamm2005). What is more, industrialized countries are outsourcing more cutting edge worksto India such as medical outsourcing (e.g., CT scans and other images transmitted viabroadband) (Waldman 2004) and high quality R&D.

3.6 NATIONAL TECHNOLOGICAL CAPABILITIES

China has built national technological competence in a fairly short period of time.Among many achievements indicating Chinas status as a global technologicalpowerhouse, one is particularly telling: acceptance of Chinas Time Division -Synchronous Code Division Multiple Access (TD-SCDMA) as a global 3G cellularstandard by the International Telecommunications Union (ITU). Among 16 proposalssubmitted for IMT-2000x standards, the ITU selected TD-SCDMA as one of the threeglobal 3G standards. Chinese government officially declared TD-SCDMA as its national3G standard (Reynolds 2005). The existence of domestic technological standard will

facilitate the diffusion of mobile broadband. China is also partnering with Japan andKorea to develop standards for the fourth generation (4G) cellular phones, which areexpected to become commercially available by 2010. They have agreed to jointlydevelop protocols and standards. 4G phones would allow a bandwidth of 100 Mbit/sec,about 25 times that of current 3G state-of-the-art phones.

Chinese technological firms also have a high degree of export orientation. More to thepoint, since 2004, China has become the worlds biggest ICT exporter and its high techexport as a proportion of manufacturing export is much higher than Indias (Table 1).China and Chinese Taipei produce nearly half of the world's supply of broadbandproducts such as DSL and cable modemsxi. Chinese telecom equipment vendors

Huawei and ZTE have sold fixed and mobile broadband equipment in a number ofdeveloping and developed countries across all five continents. In particular, Huawei isready to build networks based all three 3G cellular standardsCDMA 2000, W-CDMAand TD-SCDMA.

India is also making some progress toward developing national capabilities inbroadband technology. For instance, the Indian Institution of Technology at Madras hasdeveloped the broadband corDECT which is based on European DECT system. A


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major strength of this system is its relative low cost (Best and Pehrson 2005). Likewise,the Bangalore unit of Intel team has planned to launch microprocessor chips for high-speed broadband wireless technology in 2006 (Mehra and Padmanabhan 2006).

3.7 RELATED INFRASTRUCTURE

China received better marks than India for infrastructure related to broadband (PyramidResearch 2001). Traditionally, a high proportion of the telecom investment in Chinawent to the most modern available infrastructure because the government aspired fornothing but the best. For instance, in the late 1980s and early 1990s, ShanghaiTelecom undertook projects to lay under the city's streets one of the world's largest fiberoptic cable networks that contained much more bandwidth than needed for simpletelephone services (McGill 2001). The investment in the most modern infrastructure isa part of Chinese national initiatives to develop telecom infrastructure and high-speeddata networks.

Both countries well developed rail networks are driving broadband growth. In thisconnection it is worth noting that India has one of the worlds most widespread anddense rail networks with 8000 stations and an average distance of 8 KMsxii. India isusing rail network to bring affordable broadband access quickly to the rural population(ITU 2004). Cybercaf kiosks have been set up along railway tracks to provide Internetaccess (Lee et al. 2005). China has even better utilized network resources along itsrailways. The Ministry of Railways (MoR) has over 35,000 kilometers of fiber (Lovelock,2001). China Railcom, a division of the MOR, owns the network resources. As of 2003,China Railcom provided services to more than 500 citiesxiii. As of February 2005, ChinaRailcom had over 1 million broadband subscribersxiv.

Likewise, Gailtel, the telecoms services arm of a gas transmission company in India,had 8,000 KMs optic fiber co-axial network in 2005 and has plans to extend to 18,000KMs. It started leasing bandwidth in mid-2001 and operates as an ISP. As of 2005, thenetwork served 73 cities in 8 states. The company overlays OFC network on existingpipelines, which has resulted in substantial cost-savings and thus significantly lowercosts to end-users compared to competitors (Lee et al. 2005).

Compared to broadband, both countries have much higher cable TV penetration rates(Table 1). The existing cable TV infrastructure thus can be upgraded to broadbandconnectivity as already offered in several OECD countries (ITU 2005b). It should,however, be noted that, in India, cable use is primarily to wealthier urban areas (Lee et

al. 2005).

3.8. SUPPLY CHARACTERISTICS OF BROADBAND

In both countries, economies of scale are driving down costs of broadband services andrelated technologies to end-users. Both countries broadband prices are among thelowest in the world. In India, broadband is being offered for $10 a month by someproviders (Business Wire 2006). The same is true of China. An hour on a broadband


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connection in an Internet cafe in a small Chinese town cost about 13 cents in the early-2006 (The Economist 2006). Likewise, during 2003-2005, the price of the cheapest PCin India decreased from $430 to $230 (Goyal 2005).

Innovative marketing and content availability are also driving broadband diffusion. In

India, telecoms and PC hardware manufacturers are marketing games to drivebroadband and PC penetrations (Business Wire 2006). In recent years, investment inprogramming and digital distribution has increased (BBC Monitoring InternationalReports 2006). Likewise, in China, emergence of non-telecom broadband local accessproviders such as local municipal governments and real estate developers are drivingbroadband growth (Pan 2006).

3.9. IMPACTS OF BROADBAND DIFFUSION

India and China are becoming increasingly integrated information societies. In bothcountries, some rural communities already have access to e-government, tele-

education and telemedicine services (Lee et al. 2005). In Tamil Nadu state of India, forinstance, an eye hospital examines patients located in dozens of miles away utilizingWi-Fi to transmit images (Fleishman, 2006). Similarly, in China, students in some ruralvillages are participating in distance-learning courses set up by universities in Beijing viaVSAT satellite broadband (Lee et al. 2005).

Thanks to broadband and other ICTs, low- as well as high-skilled manpower in the twoeconomies are actively participating in the design and development of innovative newproducts thus breaking traditional geographical barriers (Plant Engineering 2006). WhenInternetand broadband connectivity are available in rural areas, the costs will fall evenlower (Helm and Kripalani 2006) thus increasing outsourcing potential. Some analysts

argue that the theory of comparative advantage may need modification when China andIndia with their high skilled workers with broadband and the Internet access competewith those in industrialized countries (Business Week 2004b).

In particular, India has been able to exploit its comparative advantage associated withits English-speaking workforce thanks to broadband and globalization (The Economist2006a). Indias overall education level is below industrial countries and Chinas.Nonetheless there are a large number of well-educated Indians. Broadband makes itpossible to build an enclave economy which can effectively become a new low-wagefirst world economy (Thurow 2004). For instance, General Electric has a 70:70:70 rule,which means that it plans to outsource 70% of its processes, 70% of outsourced

processes will go offshore and 70% the offshore outsourcing will go to India (Price andTurner 2005). This and similar cases suggest Indias high growth potential as anoffshore outsourcing destination, thanks to broadband. Some even argue that comparedto Chinese low cost factories, Indias low-cost financiers and its orientation towardsservices will continue to trigger the growth of Indian economy over the next decadewhile Chinas manufacturing boom will soon wear out (Farrell 2006).


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Perhaps more intriguing than U.S. and European firms outsourcing to India is the factthat Indian firms have started outsourcing some of their business processes to othercountries including industrialized ones. Consider the following example:

Narayana Hrudalaya, a Bangalore heart hospital, has links to affiliates throughout India, in KualaLumpur and Mauritius, and a medical school in Hannover, Germany. The Indian doctors consult with

patients over broadband connections, on which they can see X-rays and angiogram results. Futureplans include robotic surgery by remote control, perhaps the ultimate in outsourcing (Singh 2004).

4.0 DISCUSSION AND CONCLUSION

The foregoing discussion provides a framework for understanding broadband diffusionin the developing world. Based on the framework, we compared and contrasted factorsshaping broadband diffusion in China and India. Different sets of conditions haveinfluenced broadband diffusion in the two economies. Chinas stronger economy andbetter penetration of base and related technologies (Table 1 and Figure 1), governmentintervention and consumer innovativeness are driving the broadband growth. In China,

the government has influenced demand and supply of the broadband through its deepentrenchment in the economy. In India, on the other hand, healthy competition and thecountrys emergence as the global capital of offshore outsourcing have triggered thebroadband growth. Meaningful government interventions in China have produced betterresultsin terms of penetration level as well as geographical equity- than Indiashealthier competition created by the government. The bottom-line message is that thegovernment can play a critical role in the diffusion of modern technologies such asbroadband although the appropriate role is a function of the nature of the economy.

Both countries have made extensive use of related networks owned by railway and gascompanies to provide broadband. Investment in cable broadband could contribute to the

fuller exploitation of underutilized potential.

In particular, broadband has played a key role in Indias emergence as a global capitalof offshore outsourcing. The most notable trend probably is Indian firms outsourcingbusiness processes to other countries. In conclusion, Broadband has helped botheconomies in their advancement towards information society.


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FIGURE 1: A COMPARISON OF BROADBAND AND RELATED TECHNOLOGIES IN CHINA AND INDIA

A Comparison of Chinese and Indian PC

markets

China

India

0

20000

40000

60000

80000

100000

2000 2001 2002 2003 2004 2005

Year

PCi

n

use

('000)

A Comparison of Online Householed in China and

India

China

India

0

5

10

15

20

25

30

2000 2001 2002 2003 2004 2005

Year

Onlinehouseholds(milli

on)

A Comparison of Internet Users in China and

India

China

India

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005

Year

InternetUsers

(Million)

A Comparison of Telecom Inve stment in China

and India

China

India

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004

Year

Telecom

Investment($,

billion)

A Comparison of Fixed and Cellular Phones in

China and India

China (Fixed)

India (Fixed)

China (Cell)

India (Cell)

0

50

100150

200

250

300

350

400

450

500

2000 2001 2002 2003 2004 2005

Year

No.o

fusers(million)

A Comparison of Broadband Pene tration in

China and India

China

India

0

5000

10000

15000

20000

25000

30000

35000

40000

2001 2003 2004 2005 (end) 2006( Q1)

Year

Broadband

penetration

('000)


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FIGURE 2: A PROPOSED FRAMEWORK TO EXPLAIN BROADBAND DIFFUSION IN DEVELOPING COUNTRIES

/

Impact on the economy

oAdvancement towardsinformation economy

oInternational competitiveness

Technological

competitiveness of firms

oProduction oftechnologies and

technological standards

oExport orientation

Input characteristic

oQuality of ITworkforce

oCost of hiring

Supply characteristics of

broadband

oCost/affordabilityoQuality

oContent availabilityoMarketing/innovativeness

Related

infrastructure

Usability andupgradeability of

existing

infrastructure

Broadband diffusion

Diffusion levelDiffusion pattern Width of adoptionDepth of adoption

Government policy

oInvestmentoMarket opennessoLicensing and tax

Business characteristics

impacting broadband

demand

oDevelopment ofindustries requiringbroadband

Industry structure

o

Competitive

rivalry

oHorizontalcollaboration

Consumer characteristics

impacting broadband demand

oIncomeoInnovativenessoAdoption of related technologies


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TABLE 1: A COMPARISON OF INDICATORS RELATED TO BROADBAND IN CHINA AND INDIA

Indicator China India

No. of Broadband users (millions, Q1, 2006)c

Broadband users per 1000 people (Q1, 2006)

33.726

11

Personal computers (PCs) in use(millions, 2005)a

PC users per 1000 people (2005)

80.6

62

16.3

15

No. of Internet users (million, 2005)a

Internet users per 1000 people (2005)

239.6182

9387

Online households (million) (2005)a

24.1 7.6

Annual growth rate of PC (1995-2003)h34.1 24.1

Annual growth rate of Internet (1995-2003) h89.9 53.8

Average monthly broadband charges ($, 2004)d 16 20

Capital investment in telecommunications ($,

billion, 2004)a

26 5

Fixed telephone lines in use (million, 2005)a

316.5 50.0

Mobile telephone users (million, 2005) a 429.4 65.9

National telephone calls (million minutes, 2004)a

68015 35

International outgoing telephone calls (million

minutes, 2005)a

1260 696

Adult literacy rate (% ages 15 and above) p 90.9 61

Researchers in R&D (per million People, 1990-2003) p

633 120

Total population (2003, millions) p1300 1070.8

GDP per capita (US$ 2003) p1,100 564

GDP per capita (PPP 2003)

p

5,003 2,892

High-tech exports (% of manufactured exports,2003) p

27 5

No. of cable TV subscribers (2005)150 million b 30 million q

E-commerce revenue$68.72 billion (2005) K $130 mil (2004-5) h

$900 mil(2006) e

Internet advertising revenue$812 million (2006)$1 billion+ (2007) f

$13.3 mil. (2004) I$18 mil.(2004-5 ) g

SOURCES:AEUROMONITOR INTERNATIONALS GLOBAL MARKET INFORMATION DATABASE,

BBASU (2006A),

C

ZDNET RESEARCH (2006),D

MISHRA (2004),E

ESTATSINDIA.COMS ESTIMATE (INDIAN E-COMMERCEMARKET CLOSE TO $1 BILLION, HTTP://WWW.CONTENTSUTRA.COM/INDIAN-E-COMMERCE-MARKET-CLOSE-TO-1-BILLION), F ADEX INDIA CITED IN ROBERTS (2006), G INDIAN ONLINE ASSOCIATIONS (IOA)ESTIMATE CITED IN SEN (2005),

HREDIFF.COM (2005),

IADEX INDIA CITED IN EUROPEAN ADVERTISING &

MEDIA FORECAST (2006),KE-COMMERCE CHALKING UP STRONG GROWTH: SURVEY,

HTTP://ENGLISH.PEOPLE.COM.CN/200602/20/ENG20060220_244208.HTML;P

UNDP (2005),QITU ( 2005B) .


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ENDNOTES

i See http://www.moconews.net/chinese-3g-spending-could-reach-25-b-analysys.html ii See China Becomes Top DSL Country, SinoCast China Business Daily News, March

9, 2004, p. 1.iii See Communications in the People's Republic of China,http://en.wikipedia.org/wiki/Communications_in_the_People's_Republic_of_China iv See WebSky to set up JV for operation of wireless broadband internet system inIndia, World IT Report, June 24, 2004, p. 1.v See India defines broadband policy and rejects local loop unbundling,http://www.itu.int/ITU-D/treg/Newsletters/Research%20Material/India-broadband-Carlos_Oct2004.pdfvi See India clamps down on bloggers, cell users, July 18, 2006,http://www.physorg.com/news72460837.html

vii See Ethernet Services in China,http://www.heavyreading.com/details.asp?sku_id=708&skuitem_itemid=710&promo_code=&aff_code=&next_url=%2Fdefault.asp%3F viii See A China Telecom Play With A Quiet Ring,http://www.businessweek.com/magazine/content/06_25/b3989116.htm ix The same estimate suggests that by 2007-08, this industry will account for 7 percentof India's GDP employing 1.4-1.5 million people.x International Mobile Telecommunications (IMT- 2000) is a general term fortechnologies planned to be included in the ITU's world standards for 3G mobilecommunication.

xi See China Sourcing Report Broadband Communication,http://www.bharatbook.com/detail.asp?id=9001 .xiiSee Fast track for Indian Internet BBC, 31 May, 200).xiii See China Railcom Delivers Advanced Network Services In Three Metro AreasUsing Riverstone Solutions,http://www.riverstonenet.com/news/pr_2003/2003_01_27.shtml xiv See China Railcom Broadband Subscribers Exceed 1 Mln, February 23, 2005http://arabic.china.org.cn/english/scitech/120954.htm

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